Economics focus

How to save the world

Jeffrey Sachs has some good ideas, but also some iffy ones

WHEN you are asking for $75 billion a year, you need a good reason. Jeffrey Sachs has one. He thinks that if aid to poor countries were increased by this sum—ie, more than doubled—and kept at that level until 2015, extreme poverty could be halved. Next year, in his capacity as head of the United Nations “Millennium Project”, which aims to achieve this goal, he will present to the G8 countries a detailed plan for how the money should be spent, in the hope of persuading donor nations to cough it up. Can Mr Sachs really persuade western leaders suddenly to shower cash on people who can not vote for them?

The answer will depend in part on whether they are convinced that the money would be well spent. On this point, he will be met with scepticism. Development aid has failed, in the past, to stimulate much development. Lavishly aided countries have grown no faster than those that have been neglected. This is one reason why rich countries refuse to give much. Though most have promised to donate 0.7% of gross national income, the average for the richest 22 countries is 0.25%.

Mr Sachs admits that foreign aid has not achieved much in the past. But he argues that this is because there has not been enough of it, and it has been “very poorly targeted”. Those who despair of helping the poorest, he contends, are like people who send a single fireman to fight a forest fire and, when he fails, say: “Why should we send more firemen? We have already seen that they are ineffective.”

He has a point. A lot of aid has been wasted propping up economically illiterate kleptocrats such as Mobutu Sese Seko of Zaire. David Dollar and Lant Pritchett, among others, have dug up solid evidence that aid, when directed towards poor countries with sound economic policies and competent institutions, tends to accelerate growth and lift people out of poverty.

The corruption of poverty

Mr Sachs goes further than this. In a study published earlier this year*, he looks at tropical sub-Saharan Africa, where poverty seems most intractable, and challenges the popular idea that this is mostly down to poor governance. He cites other obstacles to Africa's growth, such as its extraordinary disease burden (it is hard to work when you are woozy with malaria), the lack of deep ports and navigable rivers, the infertility of much of its soil and the colonial legacy of borders that slice the continent into lots of tiny nations with negligible markets and too little sense of nationhood to remain stable.

Mr Sachs argues that these natural disadvantages make it impossible for Africans to save enough to make the necessary investments to kick-start growth. His solution is more aid. The extra cash would be used in a variety of cost-effective ways: more bed-nets to fight malaria, better roads to help peasants get their crops to market, more diesel generators to electrify villages, and better schools among other things. The theory is sound: there are indeed cheap, proven remedies for many of the ills that plague Africa. But will the money actually be spent on these remedies? Mr Sachs envisages funnelling most of it through national governments, who would have to train many more teachers, engineers, nurses and other professionals, and then persuade the best of them not to emigrate to rich countries.

But is it not likely that corrupt elites will snaffle the bulk of the extra money, either directly or by awarding contracts to their cronies? Mr Sachs thinks such wastage can be minimised through tough conditions, and by cutting off aid to countries that misuse it too flagrantly. His optimism is informed by an original and controversial analysis of the relationship between good governance and development.

The conventional wisdom is that corruption keeps poor countries poor. Mr Sachs argues that it is the other way round: that “good governance itself requires real resources”. Bureaucrats steal because their wages are too low, and they can do so with impunity because the public accounts have not yet been computerised. If you control for income levels, he shows that Africa is no worse governed than elsewhere.

This is clever, but controlling for poverty yields some very odd results. For example, Mr Sachs finds himself rating the quality of governance in the Central African Republic (a war-torn gangster state) as “average”. Ditto Nigeria, an assessment virtually no Nigerian would agree with. Nigeria's anti-corruption tsar, Nuhu Ribadu, argues that “corruption has nothing to do with being underpaid.” Rather, he says, it is a widespread crime because of a failure of leadership under previous regimes.

Mr Sachs's grand plan depends on there being plenty of governments in poor countries that are clean and competent enough to be entrusted with a sudden infusion of free money. By his assessment, there are. In Africa, he cites a dozen, including Senegal, Mozambique, Ghana and Zambia. It is not a bad list, but it would be hard to make it longer. And all the nations on it have significant problems with corruption, which could be aggravated by a sudden deluge of cash. If there is more to embezzle, more crooks may be tempted to enter government. Extra cash might also reduce the incentive to enact painful but necessary reforms, such as privatising state-owned firms.

Mr Sachs says he wants to “scale up” aid to “all the countries that are ready”. At the same time, he argues that donors could test his ideas by quintupling aid to Ethiopia, which has lots of poor people and a fairly pragmatic government. If the Ethiopian government uses the money to go back to war with Eritrea, as it did in the late 1990s, the programme should be stopped, he says. But if it works, it should be copied swiftly and widely. “If” looms large in his argument.